Margin squeeze

The term margin squeeze (or price squeeze) is a convenient label for some forms of exclusionary abuse involving an interaction between two levels in a supply chain.

This applies in particular to cases where the controller of an infrastructure facility with a dominant position seeks to "reserve to itself" parts of a related downstream market.

How we can help

We can advise parties to disputes relating to an alleged margin squeeze on how they might be able to put their case or develop relevant economic evidence to support or refute the analyses outlined below.

Before a dispute has erupted, we can advise potential complainants or potential recipients of complaints about the validity of concerns raised, the steps that might be taken to ensure compliance, or the prospects for a successful complaint or claim.

What is a margin squeeze

The firm accused of abuse operates as a vertically integrated entity over several levels of a supply chain.

The firm holds a dominant position at one level of the supply chain — say, upstream.

The firm faces competition, or the prospect of competition, at another level of the supply chain — say, downstream.

The firm has some influence on downstream market prices (this need not be a second dominant position).

The relationship between the upstream price (set by the firm in a dominant position) and the prevailing price in the downstream market is such that a competitor or potential competitor is forced out of the downstream market.

Economic analysis of margin squeeze allegations

Claiming predatory abuse in a margin squeeze situation involves showing that the prices offered by the accused firm in the potentially competitive market are so low that their object was to use the upstream dominant position so as to exclude one or more competitors from the downstream market. This would need to rest on evidence that:

The downstream pricing policy (considered on its own) involved a sacrifice of profits without an objective justification (e.g. promotional investment).

Considered objectively, this sacrifice of profit could only have had as its object the elimination of a competitor from the downstream market.

There is a risk that competitors will be eliminated as a result of the sacrifice.

The upstream dominant position was instrumental in the elimination strategy (analysed objectively) — for example, it might have been used to prevent some forms of downstream entry, or by funding downstream losses.

Claiming constructive refusal to supply would require evidence that support a different set of assertions:

The prices offered in the upstream market (under a dominant position) were higher than what could be objectively justified.

Considered objectively, the object of these high upstream prices was to prevent one or more downstream competitors from gaining access to the upstream product.

These competitors cannot operate competitively in the downstream market without effective access to the upstream product (as is the case, for example, if the upstream product is access to a monopoly network).

Some patterns of conduct may infringe Article 82 on both counts, such that the distinctions drawn above do not matter. But in other cases the evidence available to support analysis under the two heads may be significantly different, making it important to specify clearly the nature of the claim.